Finance Smiths

Personal finance apprentices-in-training

Downpayment and choosing a fixed rate housing loan package

by //

I have engaged a law firm to manage the property purchase transaction and I’m preparing for the appointment to sign the Option To Purchase (OTP). Just wrote the cheques for the payment of the balance deposit, stamp duty and legal fees. This is going to draw down on my cash holding significantly and I’m reducing my investing activities accordingly. In fact, the rest of the downpayment in a few months’ time is going to wipe out most of my cash on hand so I probably can’t invest much at all. Need to give myself time to rebuild my cash position for investing and it’s going to take a while. Even after using up most of my CPF-OA for the downpayment, I still have a shortfall to make up.

I’m thinking of withdraw the funds required from my robo-advisor accounts and monthly investment plans. After all, these automated investments are the mostly costly to maintain because of higher platform and transaction fees. This should allow me to avoid selling down my manual investments held in my Stan Chart online equity trading account. These are more profitable to maintain because of lower transaction fees and better market timing results on the purchases. I have about 3 months until the sale completion to come up with the funds for the shortfall and I’m hoping for a bounce in the equity markets in the meantime to do so.

In fact, I have already fully withdrawn the funds from my OCBC RoboInvest accounts last week since all of the portfolios had some small gains and have the smallest account size. Just waiting for the cash amount to be deposited into my bank account. Next up should be my wife’s DBS DigiPortfolios, both of which have bigger gains and account size. Still trying to find a good time to put in the withdrawal request. After that may be our StashAway robo-advisor accounts. These have the biggest gains and account size. I would have liked to hold all of them for a longer period of time but I need the funds for my family to have a home to live in for the next several years. I’m not keen to keep renting and be subject to landlord restrictions in an apartment that I cannot make improvements to. Especially when I have found a unit in a development and area we want to live in. Even if it’s the most expensive purchase of our lives.

Anyway, I’m glad my bank approved the 75% housing loan (after having to show funds) because the 25% downpayment is already going to hit me hard. I will use up most of my cash, CPF-OA and robo-advisor accounts. Can you imagine if I could only get the 60% housing loan with a 40% downpayment based purely on my salary income and bonus? I would have to sell down even more of my investments. It was a difficult choice between the floating rate and fixed rate housing loan packages though. While the floating rate is about 25 basis points (0.25%) below the fixed rate for now, I’m not confident the interest rates won’t rise in the next 2 years. Given the inflation pressures (could be transitory in nature but it remains to be seen), I expect there to be about 1 to 2 interest rate increases by late 2023.

So I have decided on a 2 year fixed rate housing loan package with a free conversion at the end of the lock-in period to one of the available housing loan packages with the bank then. If I’m right and interest rates do go up, I will be paying a lower amount each month on my current fixed rate. If I’m wrong and interest rates stay low, I’m not paying too much more per month in the meantime and will reprice to another decent fixed rate housing loan package at the end of 2 years. What I want is more certainty on my monthly housing loan repayments for the next 2 years while I focus on rebuilding my cash and investments.

There are some big expenses coming our way with upcoming childcare, apartment renovation costs and new car purchase costs. Coupled with a possible risky career move by my wife on the job front that could take years of adjustment to a new work lifestyle. I have also been considering a similar risky career move with my job but I’m not sure whether it’s a good idea for everything to be changing at the same time. We believe in taking calculated risks when the opportunities arise so it really depends on the cost-benefit analysis of taking the chance or passing it up. Operating without a sufficient financial buffer for what I expect to be about 5 years could go either way. Would rolling the dice now help secure the future of our family and finances? That’s the question I’m asking myself and the answer to which I’m looking for.

Milestone reached for investment portfolio and Coast FI

by //

I have to clear my carried forward leave from last year by next month so I took these 2 days off to create a long weekend since Wed (public holiday). Not that my routine changed by much since I still dropped off our boy at my parents-in-law’s place yesterday after taking care of him the entire day on Wed. Anyway, we will have him from Fri to Sun so it’s nice to have a break in between. Not easy to look after him for consecutive days and still have to work from home. Even with a helper taking on a lot of the workload. He’s taking his nap now, hence giving me the time to squeeze in a blog post. While my wife catches up on her work.

I was reviewing my net worth Google Sheet to prepare for the end of month update next week after Mon 31 May. It wasn’t immediately obvious to me that something big had happened. My wife & I each have our own asset portfolio tabs where we split our investment portfolio holdings between the various components of ETFs, stocks, bonds, robo-advisors and cryptos. Along with our separate cash and retirement funds balances. I sum them up on a different combined net worth tab but I don’t look at this as often (only after the end of every month). Because I’m more focused on building up and monitoring our individual portfolio asset classes and their interaction.

It may have been due to us aggressively investing our cash in the first 5 months of the year coupled with a recovery in the equity markets that has led to this. Our investment portfolio has crossed S$1m for the first time. An achievement I have been working to unlock for the past decade since starting work in our first graduate jobs in 2010. I wasn’t chasing this as a life goal the whole time but it was more of a long-term target. Something elusive at the beginning but became more tangible in the last few years. I was expecting more of a reaction from myself after realising we had reached this milestone. But it’s surprisingly muted.

Maybe it’s a function of the current heightened alert Covid restrictions generally putting a dampener on things. Or maybe it was never that important in the first place. Perhaps at the start but its meaning probably faded over time. Because what’s keeping me up at night is whether we are happy with the life we have built for ourselves. Our jobs pay us well enough for the hours we put in at work and the flexible work from home arrangements certainly help to improve work-life balance. As a result, we get to spend more time with our boy but yet choose to drop him off at my parents-in-law’s place on weekdays. Just so they get to spend more time with him too while we take a break. Until he goes to preschool in mid-Jul (it’s been delayed because of the whole Covid situation) and he gets to learn and play with other kids his age.

I read with interest recent posts from other bloggers about this concept of Coasting Financial Independence (“Coast FI”). Perhaps the most applicable FI lifestyle to us that we can identify with. We consciously manage our careers to get into jobs that have above average pay but decent hours. But we move roles every few years to keep the work interesting. We only have 1 passive income stream – dividend and interest income from our investment portfolio, which is not even that high. We don’t have other income streams because it just takes too much time and effort to build them up. We don’t have other skill sets that we can monetise or bothered developing them anyway. Our strategy is simple but lazy. Don’t overthink, overwork, overcompensate and just focus on building the life we want for ourselves.

Running my investment cash down to buy tech stocks

by //

Looks like it’s back to work from home in the next few weeks for me. I was supposed to be working in the office this week but requested to work from home instead due to the deteriorating Covid situation. Besides, I have been getting tired from working in the office every alternate week so it’s nice to switch back to working from home. I can get more time with my family, run errands and rest & exercise by myself. Without having to worry about transport time and dealing with the office environment. While it’s good for me to stay engaged at my job and catch up with my manager & colleagues in the office, I don’t need to be in the office every day of the week to do so.

I hope the Covid situation improves during this period of time because the step back in terms of restrictions is bad. It seems like we are going backwards in terms of moving forward, which is a sign that the Covid situation can easily escalate once we let our guard down. While it’s not a lockdown yet, there is already going to be some negative impact from the tighter Covid restrictions. Delays in our boy starting childcare, going out less as a family so he’s going to be stuck at home or my parents-in-law’s place for longer, etc. Given how active he is now, I’m sure this does not bode well for our work productivity. Let’s just hope we don’t go into lockdown.

  • pexels-photo-3483098.jpeg
    Photo by John Guccione www.advergroup.com on Pexels.com

Anyway, there has been another recent dip in tech stocks and this sell-off seems to be more significant. Mainly due to fears that rising inflation could push the Federal Reserve to tighten monetary policy faster than expected. I don’t care much for the reason why and just saw it as an opportunity to add to my tech stocks position. I noticed that I was averaging down more this time round as some of the tech stocks fell by quite a bit. I was also transferring funds into my OCBC RoboInvest tech-based thematic portfolios. In fact, I even started adding to my Singapore stocks position after the market took a hit on Fri due to the announcement of the tighter Covid restrictions.

Together with my automated monthly dollar cost averaging drawdowns, I actually ran my investment cash balance down to a low level and had to top it up with my savings cash. This is in line with my strategy of lowering the cash proportion of my asset portfolio and it just dropped from 20% to 18% after the investments. I used to prefer to hold a large amount of cash and wait for opportunities to invest in the markets. But I have slowly come to accept that this may not work well for us going forward. As long as we can maintain our jobs, our monthly salaries should continue to top up our cash balance and keep a sufficient buffer for our spending needs and emergencies. Idle cash has too much opportunity costs attached to it now.